She Strengthens

Building a Safety Net: Essential Accounts for Financial Security

Are you struggling to save and feeling anxious about your financial future? You’re not alone. Many Americans lack a financial safety net, leaving them vulnerable to unexpected expenses and uncertainty. But there is hope. By prioritizing four essential accounts, you can build a foundation for financial security and peace of mind.

Emergency Savings: A Cushion for Life’s Unexpected Events

A emergency fund is the top priority for many people, especially those just starting to save. This fund helps you avoid debt and dipping into other investments when unexpected expenses arise. Unfortunately, only 30% of millennials have an emergency fund to cover at least three months of expenses. Aim to save three to six months’ worth of living expenses, depending on your job security and local job market.

Choosing the Right Account

For your emergency fund, consider a high-yield savings or money market account. These accounts offer slightly higher returns than regular savings and are liquid for easy access in case of emergency. Use this fund for recurring living expenses during unemployment, unplanned medical expenses, car repairs, or major home maintenance.

Retirement Savings: Investing in Your Future

If you have a retirement plan through your employer, contributions should be a high priority. If not, consider an IRA. Investing early allows compound interest to work in your favor, and these accounts offer tax advantages. Contribute at least enough to receive the full employer match, and increase your contributions over time. Leave your retirement accounts alone to let them grow – you’ll incur tax penalties if you tap into them before retirement.

Short-Term Savings: Funding Your Fun Goals

A short-term savings account helps cover large, planned expenses, such as a holiday trip or new work wardrobe. These accounts should live in a high-yield, relatively accessible account. You can even create individual accounts for each goal, though experts recommend focusing on fewer priorities to save more quickly.

Long-Term Savings: Building for the Future

Build long-term savings for large purchases you expect to make two to 10 years down the line. The type and timing of your intended purchase will dictate how much you need to save and where to put that money. Consider a mix of high-yield savings and investments depending on your goals. If you don’t need the money for at least five or 10 years, investment accounts may bring higher returns, but be aware of the risks.

Beyond the Essentials

Once you’ve established these four essential accounts, you can explore health savings accounts, tax-advantaged college savings plans, and additional investment opportunities. Remember, your financial priorities are unique, and your approach will depend on your individual needs. To maximize your savings potential, find a strategy for managing your money, and consider identity theft protection to safeguard your hard-earned dollars.